• Forbes.com, Thursday, September 20, 2007 11:03 AM

AOL, like its Big Web competitors, has made a few significant moves into the advertising network business--moves that will likely increase the company's aggregated revenue and advertising effectiveness. But acquisitions like the behavioral targeting firm Tacoda are band-aids for a much bigger problem: AOL's core business, the Web portal business, ain't really growin'-- enough. Time Warner recently admitted that gains at its Web unit won't match that of the greater U.S. online advertising market--bad news for a company that just started getting serious about advertising two years ago.

The greater problem is the portal business model. AOL's woes are reflected by rivals Yahoo, which has struggled with lackluster financial results, and Microsoft's MSN, which continues to operate at a loss--most recently $732 million for the second quarter.

In spite of these troubles, AOL, Yahoo and MSN still collectively represent 30% of the online ad market, according to eMarketer, down from 32.5% in 2006. Google, meanwhile, accounts for more than one-quarter of Web advertising, precisely because it's a search technology company and not a portal. That's why AOL et. al. have made a string of ad network acquisitions recently: to better compete on the more lucrative ad services front.

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